What is the ideal silver-to-gold balance in a healthy precious metals portfolio? Is it better to have more gold than silver or more silver than gold? Perhaps a 50:50 split is the best of both? This is a question that investors must consider, and it is a good question. The way investors structure their investment in silver and gold often depends on several variables, including the investment timeframe and aim, and the function of the investment. This is why there is no one-size-fits-all answer that will suit every investor. However, it is my opinion that silver is a better asset to own in the long term. There are few arguments that support my opinion.
Silver outperforms gold in response to economic crises
Both gold and silver typically react positively (in terms of price) to socio-economic crises. The Covid-19 pandemic is a typical example as the silver price doubled between March and August 2020, while the gold price increased by around 30% over the same period. Large investors flock to precious metals, looking for some sort of safe haven during negative economic predicaments. While gold is the metal that is typically first off the marks, silver generally ends the run with a higher price increase in percentage terms.
Silver is not ‘regulated’
Silver-Sphere is registered with the FIC. We are therefore not allowed to sell silver or gold Krugerrand without requesting a copy of the purchaser’s ID documents and proof of residence. The same does not apply to international silver products (NOTE: this also does not apply to Moon in-house silver products). Therefore, the privacy and anonymity of the purchaser is preserved. In this sense, silver is less regulated. For those who consider this an important aspect of precious metals ownership, silver is superior.
Higher Industrial demand is positive for price
This aspect of silver’s supremacy over gold relates to the ever-increasing industrial demand for silver. Silver is an indispensable metal, for it has thousands of essential industrial, medical, military and manufacturing uses. A case in point is the electronics industry. All electronic devices, including cell phones, computers and even hearing aids, hold a certain amount of silver; silver is the most electrically conductive metal on the planet. Even if the silver price were to shoot up into the stratosphere, Apple would still require a specific amount of silver to manufacture its electronic products, thus being forced to absorb the price increase. What is more, 95% of the silver used in electronic devices is lost and not recycled, unlike gold. Add to this equation the increasing demand from the solar panel manufacturing sector, and the tightening of the physical supply becomes unambiguous. Therefore, the demand for silver is not only constant but still increasing.
Silver is affordable and user-friendly
If you wished to own a single 1 oz. gold Krugerrand in September 2020, you would have to fork out close to R34 000. The smallest gold bullion Kruggerand is 1/10 of an ounce and is currently priced at over R3 800. By contrast, one unit or ounce of silver will cost you only around R650. This means that you need less wealth to own a unit of precious metal. Silver is thus better suited to smaller trades and purchases than gold. This makes silver popular with the average investor and trader.
It is not illegal to melt silver
No South African private citizen may own unrefined gold without a license. This includes gold dust, raw gold, gold nuggets or any gold that is not in the form of a finished product (coins, bars or jewellery). This does not apply to silver bullion products (including international bullion coins and bars, or locally manufactured bars and rounds). The only restriction on melting relates to legal tender coins (collections and bullion) issued by the South African Mint. While 99.9% of silver investors have no plans to melt their bullion coins or bars, it is worth recognising that if an industry is ever in need of silver, there should be no restrictions on investors selling to them for melting and use. The market for sellers broadens from selling merely to other investors to selling opportunities in numerous industries.
Article courtesy of Going for Gold: A guide for the South African precious metal investor by Zoltan Erdey
